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Let's Make Some World Wide Waves

The cruise-line industry is sailing a lot more smoothly than you think.

This isn't a bad time to be a cruise-ship operator. Sure, it may not seem that way. Every few months, you seem to hear about some stomach-virus outbreak on a ship. The past few years have been rough in terms of itinerary-busting hurricanes. You also have a hesitant economy, and that may ultimately mean shorter conga lines up on the pool deck.

I don't buy it, and you really don't have to look much further than Carnival's (NYSE:CCL) fiscal first-quarter report on Friday for proof. The world's leading cruise operator, a fleet of 82 vessels under various brands, saw earnings climb from $0.31 a share to $0.35 a share this past quarter. Revenues inched 9% higher to hit $2.7 billion.

A good chunk of those gains are due to increased capacity, but where's the harm in that? New ships with more landlubber-friendly features are growing the potential tourism market. Carnival alone has 19 more ships that are expected to go online between now and the summer of 2011. Disney(NYSE:DIS) recently announced plans to double its fleet to four ships. Royal Caribbean(NYSE:RCL) and NCL are also angling to expand their port presence in the coming years.

There is always a fear that the industry may expand at a quicker pace than demand warrants. Carnival noted that bookings through the end of the quarter on Feb. 4 were up, but not as much as the capacity that the operator has added over the past year. Bookings have increased even more since then, but passengers are landing great deals at lower prices than a year before.

Is that bad? It's not as bad as you think once you dig a little deeper into industry's dynamics.

Addition by subtractionThere is more to a cruising vacation than just the fare. Drinks, casino action, keepsake photographs, and shore excursions are just some of the line items that creep up on your itemized bills at the end of your trip. You have a company like Steiner Leisure(NASDAQ:STNR) that has been a consistent grower -- beating Wall Street analyst estimates in 18 of the past 19 quarters -- simply by running the spas on the largest cruise ship lines.

Cabin fares may fluctuate, but the secondary moneymaking opportunities don't have to budge. In fact, guests getting a great deal may spend a little more liberally once onboard. So even if Carnival has to give a little on the way in to fill most of its 147,000 available berths, it can make it up elsewhere.

In its latest quarter, passenger ticketing revenue rose 7.3% while the onboard revenue soared 16.1% higher. Fares still account for 76.3% of Carnival's revenues, but keep an eye on the refreshing trends of travelers spending even more once inside. It points to incremental growth, and the company's outlook confirms that. Carnival is looking to earn between $2.90 per share to $3.10 per share this year. It earned $2.77 a year earlier.

World Wide Waves to the rescueSo how is Carnival growing in a climate would seem to dictate a more guarded approach? The key to Carnival's success -- and this goes for many of its peers as well -- is that it has embraced the Internet as a marketing tool to reach deeper into that audience of younger potential cruisers.

I was recently going over potential cruise options and was blown away by the slick Royal Caribbean website. The home page incorporates live actors -- as the opening bar of Iggy Pop's "Lust for Life" plays -- in a humorous way to get visitors to select their cruising experience. First-time cruisers? Loyal RCL passengers? Seasoned travelers who have yet to take an RCL trip? Click your placard-toting guide and away you go.

I wanted to explore one of the company's newest ships and was floored by the virtual tours that are available.

Carnival is no slouch, either. It has teamed up with aQuantive(NASDAQ:AQNT) to give its sites a stickier feel and it seems to be working. aQuantive helped launch CarnivalConnections.com last summer, an interactive group trip-planning site that cashes in on the trend toward social networking.

You didn't think that Carnival was a Web 2.0 natural? Shame on you. Earlier this month, its newest ship set off on its inaugural 12-day sailing through Europe. The ship's cruise director keeps a colorful blog -- available at carnival.com/freedom -- and Freedom's apparently doing quite a bit of ringing. Carnival noted on Friday that more than 25,000 visitors have come to read the blog. Whether it's the insight of emceeing a talent show, an onboard wedding proposal over the weekend, or candid port of call snapshots, it works.

From folks on board who want a little color, to those who will take the same cruise in the future, or those who just love to live vicariously by hearing travel stories, Carnival's got another winner in its new economy arsenal here.

So is it really all that bad if that $999 weeklong trek through the Caribbean is now $949? When there is so much incremental revenue onboard -- and brand-building potential online -- you've got to like Carnival's chances to keep sailing higher from here.

More importantly, when will other travel industries wake up and smell the servers? If airlines had this kind of ingenuity online, maybe they wouldn't be in so deep a funk. I'll excuse you for now, Southwest(NYSE:LUV) but you are simply scratching the surface with your "ding" bargain-hunting service. The hoteliers are doing OK financially, but I can't tell you the last time that any lodging company rattled my innards with its website presentation.

Get it right, folks. At the very least, get thee to the end of the conga line and start dancing.

Steiner and aQuantive are both winning picks in the Rule Breakers newsletter service. If you want to learn more, you can set sail all month long on our dime with a 30-day guest pass. See you at the buffet.

Longtime Fool contributor Rick Munarriz realizes that growing up in South Florida makes cruise ships a natural and economical way to get around, but he thinks everyone should try it once. He does not own shares in any of the companies in this story, save for Disney. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Author

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time with more than 20,000 bylines over those 22 years. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he splits his time living in Miami, Florida and Celebration, Florida.
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